Harvey Supplies Inc. has a current ratio of 3.0, a quick ratio of 2.4, and an inventory turnover ratio of 6.  Harvey’s total assets are $1 million and its debt ratio is 0.20.  The firm has no long-term debt. What is Harvey's sales figure?

Answer:

Total Debt = Debt Ratio * Total Assets = 0.20 * $1,000,000 = $200,000

As there are no long-term debt, all of total debt is current liabilities.

Current Assets = Current Ratio * Current Liabilities

= 3 * $200,000 = $600,000

Quick Ratio = [Current Assets - Inventory] / Current Liabilities

2.4 = [$600,000 - Inventory] / $200,000

2.4 * $200,000 = $600,000 - Inventory

Inventory = $600,000 - $480,000 = $120,000

Sales = Inventory Turnover Ratio * Inventory

= 6 * $120,000 = $720,000